Monday, December 14, 2009

More commentary on total cost of ownership in outsourced manufacturing

Eric Miscoll wrote about how the analysis of Total Cost of Ownership of outsourced electronics manufacturing has changed in recent years at EMSNow: EMSNow - Is the Migration of Electronics Manufacturing to Asia Slowing?
In a proper Total Cost of Ownership analysis, direct labor rates are one of many issues considered, and the cost improvement it can offer can be quickly eliminated when considering other important issues like transportation, support, and inventory costs.

More than 2 years ago (pre-my current job), I wrote something similar while arguing that the impact of cycle time in offshore manufacturing is undervalued:
Unless enlighted managers “dollar-ize” the effect of the integrated cycle time – and there are hard- and soft-dollar impacts associated with going from one week to four weeks, or one month to three months – manufacturing will continue to be performed where wages are lowest. It is the challenge of the regional contract manufacturer to educate and inform the customer, and develop financial models to highlight the true bottom-line impact of offshore manufacturing. Global contract manufacturers provide geographic migration plans as a standard piece of their proposals. Regional contract manufacturers must not be afraid to aggressively present these models and make the case for domestic manufacturing.

Lest anyone think I have an opinion one way or the other and that my represents the opinion of my employer (and, allow me to say right now, NOTHING I write here represents the opinion or policy of my employer! ;-) ), I will say that I am in agreement with Miscoll's final paragraph:
CBA's recommendation has been and continues to be that no two engagements are alike, and lemming-like behavior in search of 'low cost labor' can lead to expensive mistakes in outsourcing. OEMs should consider a proper 'FIT' – flexibility, integration, and timing – when designing a supply solution for their electronic products.

Finally, be sure to read the feedback I received from my father, a retired EMS CEO: Good piece, as far as it goes.

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